Tax Court rejects dark store theory; victory for county homeowners


A decision by the Minnesota Tax Court in favor of arguments by lawyers in the Hennepin County Attorney’s Office Civil Division is likely to have major ramifications throughout Minnesota.

The case in Lowe’s Home Centers, LLC v County of Hennepin involved a Lowe’s store in Plymouth, which had insisted that the Hennepin County Assessor’s Office had overvalued the store for setting its property tax bill. The company said the market value of the store on Vicksburg Lane should be $5.3 million, not the $11.8 million the county had set.

“This decision protects the county’s tax base by ensuring big-box stores pay their fair share of taxes,” said John March, senior attorney for the Real Property team in the Civil Division. “If Lowe’s argument had prevailed, it would impact county homeowners and others because they would be unfairly picking up the lost taxes from big-box stores.”

Lowe’s argued the sinister sounding “Dark Store,” theory.

Under that theory, Lowe’s and other retailers, have argued that the county should compare the value of a thriving store, like the one in Plymouth, to the sale prices of big box stores that are vacant. March pointed out that the more accurate measure would be sales of thriving big-box stores to new owners. However, companies like Lowe’s rarely sell their store if the business is successful at that location.

Instead, Assistant Hennepin County Attorneys Deborah Russell and Thomas Pursell argued that the Tax Court should use a cost approach. That is, what would it cost to build a similar-sized store on vacant land.

The Tax Court, in its Jan. 17 ruling, said in determining the property’s value, it gave the greatest weight, 75 percent, to the cost approach and far less weight, 25 percent, to the estimated sale of a vacant building that the attorneys for Lowe’s wanted. As a result, the court only reduced the value on Lowe’s Plymouth property to $10.5 million.

“Both experts agreed there are a very limited number of sales of single-user owner-occupied buildings that are similar to the subject property and no sales of these properties performing well in good locations,” according to the Tax Court’s decision.

This is not an esoteric debate. Last month, the New York Times wrote about the trend by many large retailers to use the dark store theory across the nation. The story highlighted the Wisconsin town of Manawa which lost a battle with Sturm Foods, the town’s largest local employer. That cut Sturm’s property tax by more than half. As a result, property taxes for everyone else rose by 12.4 percent, or about $300 per homeowner.

“This was good work by our Real Property Team,” Hennepin County Attorney Mike Freeman said. “This decision validated the methods used by the Hennepin County Assessor’s office to assess the value of big box stores. The decision also offers the same protection to the other Minnesota counties.”